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Softto seeing harder times

By Zhou Yan (China Daily)
Updated: 2009-02-13 13:52

 

Softto displays its products at a health care and cosmetic products exposition in Beijing in this file photo. [China Daily]

Cosmetics and personal health care product makers can usually laugh off an economic recession: Being well-groomed, to many city folks, especially women, is even more important in job hunting when times are hard and jobs are scarce than in the good times.

But Softto is an exception.

Beset by its own internal problems, the company is lagging behind its domestic competitors in sales and profitability.

To be sure, Softto has remained profitable. But in contrast to the performance of its rivals, the company's presence in the domestic cosmetics market has been on the eclipse for some time.

It posted a profit of nearly 20 million yuan for the third quarter last year, down 40 percent from a year earlier. In comparison, archrival Shanghai Jahwa reported a 50 percent jump in earnings in the same period.

The relatively poor showing for Softto was out of line with the industry trend, stock analysts said.

"Unlike other big-ticket items like cars and consumer durables, the demand for cosmetics, at least in the China market, seems much less elastic," said Wang Gang, analyst with Changcheng Securities.

The economic downturn tends to push people into buying less-expensive domestic cosmetics and personal care products, he said.

But Softto, which promotes the "functionality" of its products, has fallen behind in innovation. In an industry as finicky as fashion, failure to wow consumers on a regular basis can be fatal.

For years, Softto has been leveraging its fortune on a few product lines, including its slimming soaps and whitening lotions, that helped establish the company's brand name when they were introduced years ago. Without any blockbuster products to entice consumers, the company's hold on market share has been slipping, said Qu Honglin, a senior partner of Glocal Strategy Consulting Co.

The company was forced to exit the market for sun care products, in which it used to hold a 4 percent market share.

"The company's diminishing share of the market for some of its staple products stemmed mainly from the lack of product development," senior research analyst Michelle Huang from Euromonitor said.

Instead of trying to regain market share with new products, Softto is focusing its resources on building a chain of retail outlets specializing in health care products. Analysts said this strategy would enable the company to sidestep stiff competition with major international cosmetics companies that have the resources to develop and new products for all market segments.

Domestic producers no longer enjoy the price advantage they used to because many multinational companies have localized their development and production, experts said.

In pursuit of its new strategy, Softto has set a target of establishing 3,300 health-care product outlets in the next few years. The company expects 2,300 of those outlets will be located in China, with the rest in 10 countries across Southeast Asia.

This kind of outlets, which have been gaining popularity in some Western countries, are still relatively new in China, said Lin Tao of Synovate Business Consulting.

"We expect to see an annual growth rate of between 10 percent to 20 percent for these outlets to 2012 based on the projected increase in demand for health care products by Chinese consumers," he said.

The company's share prices have gone up gradually since last December despite occasional faltering. Its shares closed at 4.68 yuan on Thursday, the highest since August 11.